Thursday, July 31, 2008

Being honest with yourself

Over at The Simple Dollar, Trent has a great post today on how to stop lying to yourself about money. I think this is a really astute observation about how people get into financial trouble: if people were really honest with themselves about the state of their finances, would they continue to take on debt and spend more than they earn? I doubt it.

I've been guilty of this in the past. I wrote recently about the bad advice I've given myself in the past, and this really amounts to lying to myself about where I stand financially. I've committed many of the warning signs Trent describes:
If you don’t recognize a problem, you’re going to go on deceiving yourself and digging yourself into a deeper and deeper financial hole. Here are some of the big warning signs to look for:
  • Do you often feel like you have to "justify" purchases because your brain tells you you can’t afford them?

  • Do you avoid looking at bills and financial statements?

  • Do you tell yourself that your "future self" will take care of this bill?

  • Do you try to block thoughts of your debts and budgeting out of your mind when you want something?

  • Are you often "surprised" by your credit card bills, but you don’t even think about the bills when you bust out the plastic?

  • Do you tend to believe you’re more well off than you are when you’re out in public buying stuff than when you’re looking at your bills?
If any number of those are true, you’re either directly or indirectly misleading yourself when it comes to your financial state, and that directly leads to financial trouble.
In particular, I've avoided opening bills, I've rationalized purchases while knowing deep down that I couldn't afford them, and I've left bills for my successful, affluent "future self" to pay (when is that guy going to show up, anyway?).

During my days of keeping myself in the dark, not only did I carry around an overwhelming sense of guilt any time I thought of my finances, but I was also consistently caught unprepared when it came time to pay my credit card bill: "The bill is how much??" When I started my turnaround last year, one of my biggest steps was to draw a line in the sand, and say, "This is my debt." I identified my $27,610.94 in revolving debt, and started to pay it down. By knowing how much I was starting with, and committing to not creating any new debt (by sticking to cash-only spending), I was able to make good progress in reducing the size of my revolving debt.

There are still months when I don't knock down my debt by as much as I'd like, and I don't always come in under budget, but I'm making steady progress toward my goal of eliminating my revolving debt, and perhaps more importantly, I know exactly how far I've come and how far I have to go.

Until "future me" swoops in to clean up the rest of this mess, that will keep me moving forward.

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